By Lynn Thomasson and Adria Cimino
Aug. 31 (Bloomberg) -- Stocks slid worldwide, trimming a sixth straight monthly gain for the Standard & Poor’s 500 Index, as lower metals and oil dragged down commodity shares and banks fell on concern their rally outpaced the prospects for earnings.
China led the global slump as the Shanghai Composite Index tumbled 6.7 percent, the most since June 2008, and entered a bear market. Alcoa Inc., Freeport-McMoRan Copper & Gold Inc. and Exxon Mobil Corp. dropped as copper plunged the most in two months and crude fell below $71 a barrel. Morgan Stanley retreated 3.1 percent after Bank of America Corp. downgraded the shares following an 84 percent surge this year.
The S&P 500 fell 1 percent to 1,018.58 at 11:11 a.m. in New York, paring its August advance to 3.2 percent. The Dow Jones Industrial Average lost 77.24 points, or 0.8 percent, to 9,466.96. The MSCI World Index of 23 developed nations slid 0.9 percent.
“China and the U.S. are very economically linked right now,” said Michael Binger, a Minneapolis-based fund manager at Thrivent Asset Management, which oversees about $60 billion. “The stock markets are going to move together.”
The MSCI Asia Pacific Index dropped as investors speculated that lending curbs in China will damp growth in the world’s third-largest economy. The tumble in Chinese stocks increased demand for the relative safety of the yen. The Japanese currency was also boosted as the Democratic Party of Japan’s victory marked an end to single-party government that lasted almost unbroken for half a century.
U.S. energy and raw-material producers fell the most among 10 groups in the S&P 500 today, each losing more than 1.7 percent collectively, as all of the main industries declined.
Six-Month Rally
The S&P 500 is poised to trim its sixth straight monthly advance, the longest stretch of gains since January 2007. Morgan Stanley retreated 3.1 percent to $28.59. Bank of America analyst Guy Moszkowski cut the sixth-biggest U.S. bank by assets to “neutral” from “buy” because compensation costs are rising and the shares are “no longer deeply undervalued.”
Baker Hughes Inc., the world’s third-largest oilfield services provider, tumbled 7.3 percent to $35.31. The company agreed to buy BJ Services Co. for $5.5 billion to add to its natural-gas and deepwater businesses. BJ Services surged 10 percent.
Rising Valuations
Europe’s Stoxx 600 fell 0.7 percent, reducing its monthly advance to 4.9 percent. The rally has driven the price-earnings ratio for the index up to 48.6, the highest level since June 2003, according to weekly data compiled by Bloomberg. Trading in London was closed for a holiday.
The MSCI Asia Pacific Index slipped 0.9 percent. Baoshan Iron & Steel Co. dropped 7 percent after the company reported a 93 percent plunge in first-half profit. The Asian gauge is valued at 108 times the earnings of its 970 companies, the highest level since 2002, Bloomberg data show.
“There was more breadth to the global downturn than we’ve ever seen so it’s going to be very difficult to re-start the broader global economy,” said Stephen Roach, chairman of Morgan Stanley Asia Ltd., in an interview on Bloomberg Television. “It’s too early to put all this behind us.”
China Southern Airlines Co., the nation’s biggest carrier, fell 7.9 percent. First-half net income at the Guangzhou-based carrier tumbled 97 percent as it failed to repeat year-earlier foreign-exchange gains. Industrial Bank Co. and Aluminum Corp. of China Ltd. tumbled 10 percent after Caijing magazine reported new loan growth this month may be almost half that of July.
‘Bubble Territory’
The Shanghai Composite has slumped 23 percent to 2,667.75 since Aug. 4, more than the 20 percent drop that is the common definition of a bear market. China’s gauge is the worst performer this month among 89 benchmark indexes tracked by Bloomberg globally.
China’s economy isn’t “sustainable” and the Shanghai Composite “should be 2,000 or less,” former Morgan Stanley Asian economist Andy Xie said in a Bloomberg Television interview. He added that China’s market remains “in bubble territory.”
Japan’s Nikkei 225 Stock Average fell 0.4 percent, reversing an earlier gain of 2.2 percent. The yen appreciated against all 16 major trading partners tracked by Bloomberg.
“Some are saying the market has fully reflected the change of government, but the change is too big to be priced in,” said Hisakazu Amano, who helps oversee the equivalent of $18 billion at T&D Asset Management Co. in Tokyo. “The impact of the DPJ victory on company earnings is still uncertain and investors can’t decide what to buy or sell.”
Japan’s Election
The DPJ routed the Liberal Democratic Party in yesterday’s vote, capturing 308 of 480 lower-house seats. The DPJ has pledged to revive the economy, which is emerging from its deepest recession since World War II, by boosting child-care spending, cutting taxes and limiting the power of bureaucrats.
The stronger yen weighed on Japanese exporters. Honda Motor Co., which gets more than half its sales in North America, slid 1.8 percent. Canon Inc., the world’s biggest maker of digital cameras, which gets a third of its sales from the Americas, lost 3.3 percent.
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